Operators hinge industrial growth on right gas pricing in Nigeria
Any plans to fast track industrial growth in Nigeria and boost domestic manufacturing industry must be hinged on a favourable gas pricing to reflect current realities operators have advised.
Industry players in the oil and gas sector of the economy says the high price of gas in Nigeria is deterring the growth of Industries in the country calling on the managers of the economy to review this urgently as it will encourage investment to grow the economy.
If natural gas, which is a domestic resource, is made available at a competitive price, then the resultant price of power can be reduced says Deepak Khilnani, CEO of Powergas Africa Limited.
Khilnani maintains that Private investment will only grow if investors are given the returns, adding that this is the only practical way for power generation to increase in the country.
According to him, “Nigeria holds the worlds’ 9th largest proven natural gas reserves, however the source of gas is not connected to the demand and much gas is flared – that’s the fundamental problem. It’s also where we come in. Additional investment in gas extraction, pipeline and compression stations and last mile distribution is critical for the whole industry to grow.
“The gas industry in Nigeria is growing fast. There is a strong economic incentive for industries and power generation companies to switch to natural gas. Yet the total size of the market is very small compared to the potential. There is no gas pipeline infrastructure in the North of Nigeria, where the primary fuel source is diesel and the gas availability in the South does not nearly meet demand”. He said.
Experts in the energy sector observe that as a benchmark, the natural gas price in Nigeria is high compared to international standards stressing that while the domestic retail price of gas is $7.39 per mmbtu, (one million British Thermal Units) whereas the global gas price is approximately $3-4 per mmbtu. Higher gas prices in Nigeria are a big detriment to industrial growth.
They maintain that a lower retail price to industries would, hence reduce reliance on imports and directly benefiting the consumer.
According to them with the abundance of natural gas in Nigeria, the significant economic and environmental benefits of operating on natural gas and the large power deficit in Nigeria, a lower gas price would be beneficial for the country.
Rolake Akinkugbe, Head, Energy and Natural Resources, FBN Merchant Bank observe that Gas demand for power in Nigeria could reach 5 billion scf by 2017. She however pointed out that supply is likely to fall short due to limited incentives for companies to invest in gas processing plants and pipelines to supply the local market.
Akinkugbe opine that improved gas prices could help secure off takers for produced gas at higher price although the regulated price of electricity will still hinder the ability of power plants operators to raise the price of feedstock.
“Given the sheer demand for gas, the prospects are bright, but whether that gas can reach its desired market is a completely separate issue” she added.
The solution to this is simple and not in any way complicated, a local gas market without government interference in pricing will definitely be attractive to investors Kareem Jubril Adedayo, an energy expert with Eco bank observes.
“There are some levels of improvement among local gas producers and I expect them to be the major driver of local gas market in 2016. Producers with high gas production are likely to begin commercialisation to cushion the effect of revenue drop from crude oil production. I also expect a push for higher gas price among producers supplying power plants, although I believe export and non-commercialized gas are still going to dominate the industry” he said.
He is however optimistic that in the long run when such investment are matched by improvement in power generation and transmission price will definitely find a lower level than the expected interim surge should the government decide to deregulate the industry.
KELECHI EWUZIE